London stocks faced a downcast ending on Wednesday, marking the fourth consecutive day of losses as market analysts eagerly await the UK government's forthcoming budget announcement. The FTSE 100 index closed with a 0.60% dip, aligning with other prominent European blue-chip indices, signaling a bearish trend across the board. In the financial sector, Lloyds Banking Group experienced a decline of 0.58% following a report detailing a year-over-year decrease in statutory profit after tax and net income for the third quarter.
Analysts at RBC Capital Markets highlighted, 'In our view, Lloyds now looks expensive relative to peers, and we believe the re-rating story will be much tougher from here. We feel that structural hedge tailwinds, growth in other income, and good asset quality are trends now much better understood.' Additionally, they pointed out potential risks associated with the Financial Conduct Authority's review of motor finance, suggesting that while the consensus remediation charges are below their conservative estimate, 'a soft outcome could represent a positive catalyst, but the reward is not worth the risk, in our view.' While acknowledging Lloyds as a well-managed bank with favorable strategic positioning, they lamented that 'we have run out of runway in valuation terms.' Conversely, WPP emerged as the standout gainer among London-listed blue-chip companies, boasting a remarkable 5.66% increase.
This notable performance followed the announcement of higher revenue figures for the third quarter, with the advertisement and communication services firm reaffirming its optimistic guidance for the remainder of the fiscal year. In a broader economic context, analysts speculate significant tax increases and enhanced investments stemming from the impending Labour government’s 2024 autumn budget, set for unveiling on October 30.
ING shared insights, stating, 'The bottom line is that the budget is likely to see higher day-to-day spending, largely matched by tax rises, with some debt-funded investment. While that's potentially a net stimulus for the economy in the longer term, the impact over the next couple of years is less clear-cut.
And that means it shouldn't massively change the course of BoE interest rate cuts.' They currently forecast a cut in November, followed by another in December, suggesting the Bank Rate could settle at 3.25% by the end of next summer. Moreover, BofA Global Research anticipates that the October budget will be net growth-positive compared to the March calculations, projecting net annual fiscal tightening could diminish from 0.64% of GDP in March to 0.5% of GDP across FY 24-29.
This budget is viewed as a pivotal step towards enhancing the trend growth of the economy, serving to support a more cautious cycle of interest rate cuts from the Bank of England..